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December 3, 2012

Top 10 Forex Events Outlook: Dec. 3-7

Dec. 3, 2012 (Allthingsforex.com) – Five monetary policy
announcements by major central banks and the U.S. Non-Farm Payrolls and
Employment Situation report will make for an interesting start of the
final trading month of the year as the markets keep an eye on the Greek
debt buyback plans and the U.S. “fiscal cliff” negotiations.

In preparation for the new trading week, here is the outlook for the
Top 10 spotlight economic events that will move the markets around the
globe.

Australia continues to feel the impact of the slowdown of its biggest
trading partner China and the global economy. This is why the Reserve
Bank of Australia is expected to ease policy further with another 25 bps
rate cut, which will reduce the benchmark interest rate to 3.00% from
the current 3.25% level. Pressures on the Australian dollar would mount
if the central bank cuts rates and keeps the door open to more easing in
the months ahead.

The Bank of Canada policy makers will not be in a hurry to make any
changes to their existing monetary policy in the final month of the year
and will probably leave the benchmark rate at the current 1.0% level.
However, compared with the rest of the major central banks, the Bank of
Canada still remains as the most likely candidate to tighten monetary
policy in 2013 and the CAD should benefit from such expectations.

4. USD- U.S. ADP Employment Report, a measure of job creation in the private sector of the U.S. economy, Wed., Dec. 5, 8:15 am, ET.

Private sector job creation is forecast to slow a bit with139K jobs
added in November compared with 158K jobs in October. An even lower
number would serve as a warning sign ahead of Friday’s non-farm payrolls
data.

The Reserve Bank of New Zealand is yet another central bank expected
to sit on the sidelines in December, leaving the benchmark interest rate
at 2.50%. Policy makers continue to express their concerns about the
strong Kiwi dollar, but at the same time reiterate that they should not
fight market forces. In other words, the bank’s final gathering for the
year might not deliver anything we don’t already know.

The final Q3 GDP reading is expected to confirm that the euro-area is
in a double dip recession with a second consecutive quarter of
contraction by 0.1% q/q in the third quarter, after the economy shrank
by 0.2% q/q in the second quarter of 2012. The report could raise the
odds of more easing by the European Central Bank, including a potential
rate cut in upcoming months, and could keep the euro under pressure.

Despite of the recent better than expected economic data from the
U.K., the Bank of England's outlook remains dovish which has raised the
odds of more quantitative easing. Although not very likely to be
announced at the December meeting, it would not be surprising to witness
a decision to expand to size of the bank's Asset Purchase Program by
another 50 billion pounds in the first quarter of 2013, especially if
the economy takes a turn for the worse. However, for the time being, the
central bank will probably maintain the status quo and will also keep
its benchmark interest rate unchanged at 0.50%. As long as the Bank of
England continues to sit on the QE sidelines, the GBP should remain as a
viable alternative to other currencies whose central banks go full
speed ahead with more easing.

With the euro-zone officially in a double-dip recession after two
consecutive quarters of contraction in Q2 and Q3, the question now is
how long can the European Central Bank afford to wait until it resorts
to additional monetary policy easing, including another rate cut. After
putting the ball in the politicians' court with its OMT bond buying
program plan, the European Central Bank has managed to buy a few months
time. But time may be running out soon as more signs emerge that the EU
debt crisis is still far from over and growth is still nowhere to be
seen. Even if December ends up not being the month when we see a 25 bps
rate cut, ECB policy makers will be likely to face such decision in the
first quarter of 2013. As we head into the new year, whether the ECB
expands its already inflated balance sheet to buy bonds or announces an
additional reduction in the benchmark rate, the euro should feel the
pressure, especially if a rate cut makes it an even stronger contender
for the title of preferred funding currency.

A couple of months of upbeat labor market data, which has lightened
the mood ahead of the U.S. election, could be followed by a gloomy NFP
report with a month of dismal job creation as the U.S. economy adds only
25K jobs in November compared with 171K in October, while the
unemployment rate climbs back to 8.0% from 7.9%. The greenback could
come under pressure if deteriorating job market conditions raise the
odds of an expansion of the Fed's QE operations in 2013.